Triennial Investment Manager Evaluation All Souls Investment Committee presentation to Board of Trustees May 27, 2015

Agenda All Souls Investment Policy Investment Committee Process Summary Financial Results of Investments Recommendation Q/A

All Soul’s Investment Policy Calls for Maximizing return with moderate risk subject to any Socially Responsible Investment (SRI) constraints. Annual Rate of Return goal of match or exceed S&P 500, and Exceed CPI as measured by Bureau of Labor Statistics. Enable use of 5% of capital derived from investment returns, for operations, to wit: A fraction, calculated in the middle of each fiscal year as 5% of the average end-of- quarter balance over the trailing 13 calendar quarters (the so-called “Harvard method”), Source: management-guidelines/ management-guidelines/

IC Process (2015) Evaluated FY 2014 results of UUCEF and TIFF against IC chosen benchmarks Developed questions for Investment Managers Met personally with each advisor Evaluated presentations among IC members

What to consider in evaluating Managers, besides absolute returns Fiduciary must Diversify investments Be Loyal (act in the organization’s sole interest) Be Careful (Duty of Care):  reasonable care, skill and caution; portfolio approach  good faith and with care an ordinarily prudent person in a like position would exercise under similar circumstances Be Prudent (Duty of Prudence)  – Consider the organization’s risk/return objective Minimize costs: reasonable costs to invest and manage, considering:  size of assets  purposes and goals of the institution  skills/sophistication of investment committee  third party adviser costs should be reasonable Source this slide and next slide: Due Diligence Considerations for Nonprofit Investment Fiduciaries Thursday, May 7, 2009, by Venable, LLP

Analytical Considerations—IC applied these 1.General economic conditions 2.The possible effects of inflation and deflation 3.The expected tax consequences, if any, of investment decisions of strategies 4.The role that each investment or course of action plays within the overall investment portfolio of the fund 5.The expected total return from income and the appreciation of investments 6.Other resources of the institution 7.The needs of the institution and the fund to make distributions and to preserve capital 8.An asset’s special relationship or special value, if any, to the charitable purposes of the institution

The ASC endowment is invested in two funds TIFF Multi-Asset Fund (TIFF MAF) UU Common Endowment Fund (UUCEF) The endowment refers to the total amount of monies invested into these two funds As of November 2014, roughly $6.0 million was invested in the endowment $3.6 million in TIFF MAF $2.4 million in UUCEF Note: UUCEF also manages some funds bequeathed to All Souls, and All Souls cannot move those bequests to another manager.

ASC endowment performance In 2014, the market was not as strong as it was in From , net of fees: UUCEF averaged an annual return of 11.6 percent TIFF averaged an annual return of 14 percent As of December, for 2014, net of fees: UUCEF had a 3.8 percent annual return TIFF had a 1.0 percent annual return Fees reduce the earnings: Fees reduce earnings by 1.97 percent in TIFF MAF. Fees reduce earnings by 1.05 percent in UUCEF.

ASC endowment performance cont’d Net of fees, the ASC endowment had a return in 2014 of 3.8 percent as of November 2014 (latest data from the analysis). This is down from returns of around 12 percent in 2012 and During the triennial period, the value of the fund had grown from $5.57 million in January 2013 to a peak of $6.18 million in April The value of the fund fell to $5.99 million in November 2014 (latest data from the analysis). This is largely due to nearly $250,000 in withdrawals from the endowment.

A note on the limitations of the analysis The returns calculated in this analysis are average compounded year- over-year returns. This approach smoothes out some of the volatility over the period. Another approach, which would incorporate back in some of the volatility, would be to take the average mom or qoq returns for the period and then annualize them: Annualized mom returns were 9 percent; qoq were 8 percent. Also, it should be noted that 2013 was an unusually good year for financial markets, so might skew upward the results. Simply taking the returns from 2014 would show average returns of 8.8 percent.

What Investment Management Costs Us From , fees would have amounted to about $500,000, assuming the fees were reinvested in the endowment. UUCEF Fees: 1.05 percent; and TIFF Fee Structure 1.97 percent 0.5 percent of withdrawals and deposits. TIFF imposes this fee to disincent use of invested funds for operating cash.

Findings ASC investments, given that they are diversely invested, did not take full advantage off U.S. Domestic Stock market performance in UUCEF and TIFF have similar strategies of long-term growth with moderate risk to investors, and a goal of returning on average over time 8-10% annually: The over time is important: it means that in one year ROI may be 4%, and the next 12% for a two year average of 8%. Imagine this in 5-year increments to get the picture. UUCEF and TIFF are both qualified professional investment managers for non- profit institutions, e.g. ensuring Prudence and Diversification in a way IC (all volunteer) may be unable to. UUCEF has particular abilities to match UU Values: E.g. sophisticated social screens used UUCEF & TIFF were diverse and prudent when viewed over the long term. All Souls may need to rethink its investment policy to: Identify benchmark other than S&P 500 and CPI To account for the occasional need for a contingency fund which would not be invested for long-term results.

Recommendations Having completed the Triennial Review, the Investment Committee recommends: 1.Continue with UUCEF and TIFF as investment managers for one year, but monitor 2015 performance closely to determine whether changes are advisable in advance of next Triennial Review in 2018, with an appropriate appointment letter to be executed by an authorized representative of All Souls. (Further recommendations by IC due in Summer, 2016.) 2.Authorize IC to invest up to $500,000 in a no-cost balanced index fund such as Vanguard Balanced Index Fund; this authorizes but dos not require such a change. IC to report back to BoT on IC action in In 2015, IC to undertake research on further investment management options in the event that there is a recommendation to change managers.